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Macroeconomics Ch 11

A problem that the Fed faces when it attempts to control the money supply is that

Answer

 

a.

since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers.

 

b.

federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.

 

c.

while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount.

 

d.

the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools.

 

All Fed purchases and sales of

Answer

 

a.

corporate stocks and bonds are conducted at the New York Fed’s trading desk.

 

b.

government bonds are conducted at the New York Fed’s trading desk.

 

c.

real estate and other real assets are conducted by the Federal Open Market Committee.

 

d.

All of the above are correct.

 

 

When the Fed conducts open-market purchases,

Answer

 

a.

it lends money to member banks, which decreases the money supply.

 

b.

it buys Treasury securities, which increases the money supply.

 

c.

it buys Treasury securities, which decreases the money supply.

 

d.

it borrows money from member banks, which increases the money supply.

 

 

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by

Answer

 

a.

$64 of new reserves.

 

b.

$448 of new reserves.

 

c.

$700 of new reserves.

 

d.

$800 of new reserves.

 

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

Answer

 

a.

$200 of new money.

 

b.

$2,000 of new money.

 

c.

$20,000 of new money.

 

d.

None of the above is correct.

Prisoners sometimes determine a single good to be used as money.  This good becomes

Answer

 

a.

a medium of exchange, but not a unit of account.

 

b.

a medium of exchange and a unit of account.

 

c.

a unit of account, but not a medium of exchange.

 

d.

neither a unit of account nor a medium of exchange.

 

Which of the following is a liability of a bank and an asset of  its customers?

Answer

 

a.

deposits of its customers but not loans to its customers

 

b.

loans of  its customers but not the deposits of its customers

 

c.

neither the deposits of its customers nor the loans to its customers

 

d.

deposits of its customers and loans to it customers

 

The set of items that serve as media of exchange clearly includes

Answer

 

a.

demand deposits.

 

b.

short-term bonds.

 

c.

credit cards.

 

d.

All of the above are correct.

 

The existence of money leads to

Answer

 

a.

greater specialization and to a higher standard of living.

 

b.

neither greater specialization nor to a higher standard of living.

 

c.

greater specialization in production, but not to a higher standard of living.

 

d.

a higher standard of living, but not to greater specialization.

 

Which of the following is not included in either M1 or M2?

Answer

 

a.

large time deposit

 

b.

demand deposits

 

c.

money market deposit accounts

 

d.

money market mutual funds

 

Bank runs

Answer

 

a.

can be neither prevented nor mitigated by the Federal Reserve.

 

b.

are a problem because banks only hold a fraction of deposits as reserves.

 

c.

are only a problem for insolvent banks.

 

d.

will affect neither the money supply nor the money multiplier.

 

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

Answer

 

a.

$16.

 

b.

$200.

 

c.

$1,600.

 

d.

$2,500.

 

Which of the following increases when the Fed makes open-market sales?

Answer

 

a.

currency and reserves

 

b.

reserves but not currency

 

c.

currency but not reserves

 

d.

neither currency nor reserves

 

What does the Fed auction at the Term-Auction Facility?

Answer

 

a.

government bonds of a quantity it sets

 

b.

loans of a quantity it sets

 

c.

loans with the quantity determined at the auction

 

d.

government bonds with the quantity determined at the auction

 

Demand deposits are included in

Answer

 

a.

M1 but not M2.

 

b.

M2 but not M1.

 

c.

M1 and M2.

 

d.

neither M1 nor M2.

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